Reaffirmation Agreements

Reaffirmation Agreements Keep Debts “Alive”

When you “reaffirm” a debt in your bankruptcy, that debt will not be included in the discharge.  This means that after your bankruptcy is finished and discharged, that creditor that you reaffirmed can continue to collect that debt from you.  You may be asking, “Why would somebody reaffirm a debt?”  Usually people reaffirm debts that are liens on property they own, such as mortgages on your house, or car payments on your car.  In order to properly reaffirm a debt, you and the creditor must both sign a reaffirmation agreement that meets certain standards, and file the reaffirmation agreement with the court before your case is closed.  Sometimes your bankruptcy judge will need to approve the reaffirmation agreement, or will want to have a hearing on it, to make sure you can afford to pay this debt in the future.  If you sign a reaffirmation agreement and then change your mind, call your bankruptcy attorney immediately.  There is a very short time period in which you can back out of a reaffirmation agreement!

What are the Benefits of Signing a Reaffirmation Agreement?

When you reaffirm a debt, that creditor will usually continue to report to the credit bureaus that you are paying on time (if that is the case).  This will help you raise your credit score quicker after your bankruptcy.  In dealing with the creditor to whom you reaffirmed the debt, it will feel as if there was no change at all during and after the bankruptcy.  In essence, that creditor was “left out” of the bankruptcy.

What are the Benefits of NOT Signing a Reaffirmation Agreement?

When you do not reaffirm a debt, the debt is included in the discharge, which means that creditor can never force you to pay them.  BUT… if the creditor holds a lien on your house or car, they still have the right to enforce their lien.  For example, if you fail to reaffirm your house, you can keep it as long as you keep paying the mortgage payments.  But if you stop making payments, the lender can still foreclose and take your house.  But wait, you didn’t reaffirm!  True.  They are not going to sue you for money because they cannot (you did not reaffirm).  But they can still recover their collateral (your house) because they had a lien on it.  The positive side of this is that you can live in your house as long as you make payments, and you can walk away at any time and the mortgage company cannot come after you (because you did not reaffirm).  Sometimes when you do not reaffirm a car or house, the lender will act uncooperative.  They will not mail you statements, and they will not allow you to pay online.

Cars and Reaffirmation Agreements

You should reaffirm your car if you are 100% that it is a good working car and you are not going to have trouble paying it off.  If your car is worth $10,000.00 and you owe $20,000.00, you probably should not reaffirm it.  Most auto lenders will not repossess the car as long as you are current on your payments.  If in the future you need to let the car go, the lender can repossess it, but they cannot come after you for any money (because you never reaffirmed it).  Certain auto lenders will not let you retain a car unless you reaffirm it.  This presents a problem for debtors who are in the situation where it is not in their best interest to reaffirm, but they need a car to get to work.  If you are in that situation, talk to your bankruptcy attorney.  It may be best to let the car go and get another car (you probably will qualify for some kind of financing if you are working).

My Attorney Failed to do a Reaffirmation Agreement for Me.  Did He Commit Malpractice?

NO.  Let me be more emphatic: ABSOLUTELY NOT.  Getting reaffirmation agreements done is hit or miss.  Your attorney has to deal with the bankruptcy department at your lender’s headquarters, which is like organizing a symphony with zoo animals.  Usually, your lawyer requests the agreement from your lender.  The lender then has to send out a correct version.  You have to sign it, your attorney has to sign it, the lender has to sign it.  And usually the lender wants to be the one to file it, and they must file it before the case is closed.  The problems in this scenario are almost always caused by the lender failing to do their part correctly or timely.  They either fail to send the agreement, they send it to the wrong place, they send it too late, they send incorrect versions of it, or they fail to file it on time.  If any of these things happen, your reaffirmation agreement will not get done, and it is not your attorney’s fault.  When you call the bankruptcy department to ask who dropped the ball, they will definitely pass the blame on to your attorney.  Do not believe them.  Most attorneys do their very best to get these done when the client requests it.  Just remember, even if it does not get done, you can still keep your collateral (house, car, etc) as long as you stay current on the payments (unless you have one of the few auto-lenders that absolutely require them).